Statute of Limitations in Association Construction Defect Cases Tolled until Transition from Developer Control

On February 1, 2016, the New Jersey Appellate Division issued an unpublished decision in The Palisades at Fort Lee Condominium Association, Inc. v. 100 Old Palisade, LLC, et al, (Docket No. A-4292-13T3). In Palisades, the Court reversed the Trial Court’s determination that the six (6) year statute of limitations on construction defects begins to run when the work is substantially complete. Rather, the Court held that the time period for a condominium association to bring claims against contractors who performed work on the association’s common property does not begin to accrue until control of the association is turned over to the owners by the developer.

The facts of the case are simple: The Palisades at Fort Lee is a high-rise condominium, which was originally constructed as an apartment building. The building structure and adjoining parking garage were substantially completed in May 2002. In January 2005, a new owner/developer converted the property from to condominiums, and the owners took control of the association board upon the sale of 75% of the units in July 2006. As part of the transition to owner control, the board commissioned an engineer’s transition study, which was completed in June 2007 and uncovered numerous construction deficiencies. The association filed its complaint against the developer and the original contractors in March 2009.

After discovery was complete, the developer and contractors moved for summary judgment, arguing that the association’s claim was filed too late in violation of the statute of limitations, N.J.S.A. 2A:14-1, which requires that these claims to be filed within six (6) years after the cause of action accrues. The general rule is that, in construction cases, a cause of action accrues upon substantial completion of the construction work; however, there is also a common law rule known as the discovery rule, which can act to extend the statute of limitations in cases where the injured party is not aware of its damage or who may have caused those damages.

Here, since substantial completion occurred in May 2002, the developer and contractors argued that the association’s claims were untimely since they were required to have been filed by May 2008 (but were not filed until March 2009). The Trial Court agreed with this reasoning, held that the causes of action accrued upon substantial completion, and granted summary judgment in favor of the developer and contractors, dismissing the association’s construction defect claims.

The association appealed, arguing that the discovery rule should apply for several reasons, most important of which: (1) the association was not in existence until the creation of the condominium form of ownership, which occurred in January 2005; and (2) the association did not become aware of the defects until it received the transition report from its engineer in June 2007. The Appellate Court agreed, holding that, although claims for construction defects generally accrue at the time of substantial completion, the discovery rule should be applied under these circumstances. The Court found that and the association’s claims could not have been brought before the board was controlled by the owners, instead of the developer. In fact, the Court determined that the board was not aware of the full scope of the defects until it received its engineer’s report in June 2007. Since the complaint was filed within six (6) years of the time the board learned of these defects, the Court reversed the Trial Court’s dismissal of the association’s claims. In response to the argument from the developer that such a holding could extend the time for an association to file construction defect claims for an unlimited period of time, the Court noted that the statute of repose would limit any such period to a maximum of ten (10) years from substantial completion.

Generally, the six (6) year statute of limitations has not been an issue for community associations in New Jersey since the date of substantial completion is usually within a year or so of the date that the board transitions from developer/sponsor control to owner control. In addition, most association boards are advised by their counsel to move quickly towards securing a transition report, as well as potential lawsuits against the developer and its contractors. However, since this property was a conversion from apartments, that timeline was elongated, and the contractors completed their work many years before the board had the power to act on its own behalf. The Appellate Court, in applying the discovery rule to the facts of this case, found that equitable considerations and fundamental fairness require that the condominium association be given the benefit of the discovery rule to pursue its construction defect claims. Again, while this situation is not typical, the result creates a fair, common sense rule for community associations that may not follow a traditional transition from developer control.

You can read the Appellate Division’s decision in The Palisades at Fort Lee Condominium Association, Inc. v. 100 Old Palisade, LLC, et al, by clicking here.

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